World’s Cheapest Gas June 29, 2008

Fuel subsidies | Crude measures | Economist.comHALF of the world’s population enjoys fuel subsidies. This estimate, from Morgan Stanley, implies that almost a quarter of the world’s petrol is sold at less than the market price. The cheapest petrol is in Venezuela, at 5 cents per litre. That makes China’s pump price of 79 cents seem expensive, but even this is a bargain compared with $1.04 in the United States and $2.35 in Germany (see chart). A Lite is about a quarter of a Gallon.

As the gap has widened between soaring international prices and fixed domestic prices, so has the cost of subsidies. Indeed, budgetary strains are now forcing some governments to lift prices. An IMF study of five emerging economies found that the richest 20% of households received, on average, 42% of total fuel subsidies; the bottom 20% received less than 10%. That money would be better spent on health, education and infrastructure. Not only would this benefit the poor, but higher prices would also help to dampen global oil consumption, and hence the price of oil.